By Andrew Coleman*
The introduction and expansion of government pension schemes around the world in the 20th century substantially reduced old-age poverty and inequality. Part of the fall in poverty rates occurred because money was transferred from high-income to low-income people, which is the fundamental philosophy behind welfare-based pension schemes.
However, part occurred because people were forced to pay taxes or make compulsory savings when they were young and middle aged, and were provided with a pension in turn when they were old. These transfers are basically from a younger person to their older self, rather than from one person to another. They are a major component of the decrease in old-age poverty in countries that have contributory pension schemes.
Because government pension schemes provide retirement income until a person dies, they also help reduce poverty by dealing with several types of risk and uncertainty. The first risk is a nice problem to have – that your money runs out because you live “too long”.
The second risk is that a person’s private investment returns are poor, leaving them with too little money in retirement. In the 20th century inflation was a major cause of this type of risk.
A third risk is that a person’s family arrangements change in ways that significantly raise expenses. A person could get divorced for example, or they or their spouse could have very large health expenses.
A fourth risk, for those people who plan to work in old age to support themselves, is that bad health or poor “late-life earning opportunities” leave them without enough income.
Governments are very good at managing some of the investment and longevity risks associated with retirement because they can share risks across generations in ways that are not possible for individuals, families or even big insurance companies. Governments do not die or go bankrupt. Moreover, they have the legal powers to make and enforce rules so they can ensure old people get some money if disasters occur.
If things go wrong, governments can transfer money to older people by raising taxes on others. If things go really wrong, they can borrow and push part of the bill on to other generations.
Pay-as-you-go schemes are particularly good at shifting resources across generations – too good, really, as was discussed last week - but save-as-you-go schemes can also be designed to allow different cohorts to share risk. These advantages are offset by a different risk, which is probably the most difficult to manage: that the government changes the rules of the pension scheme, leaving people with a much smaller retirement income than they anticipated.
New Zealand is unique in the OECD because the government pension scheme is only based on welfare principles, not contributory principles. To many people, one of the most attractive aspects of the New Zealand Superannuation scheme is that everyone gets the same amount, independent of their current or previous incomes or the amount they have saved. No matter someone’s health, their age, gender, ethnicity, their current income or their lifetime income, everyone meeting residency requirements is entitled to the same payment.
It also provides a measure of dignity, for entitlement is based on age and nationality, not any arbitrarily defined set of achievements. In many countries, universality is a highly prized alternative to what can otherwise be demeaning and intrusive criteria to obtain a small welfare benefit (see for example Diamond and Mirrlees 1978; Kildal and Kuhnle 2008.
Most countries have a small “welfare” based pension for people whose “contributory” retirement income would otherwise be inadequate. Older generations of New Zealanders chose not to have a contributory scheme but have a welfare pension that is relatively generous by the standards of most OECD countries.
This has advantages and disadvantages. One of the advantages is that it helps to substantially reduce old-age poverty. However, it exacerbates other dimensions of inequality. New Zealand Superannuation keeps older people out of poverty because it is set at a relatively high level relative to average wages.
This means a lot of tax revenue is needed, and in New Zealand this is raised from general funds not specific social security taxes. As I shall discuss over the next few articles, these taxes not only reduce the incomes of younger people, but they also change the prices of all sorts of goods and services – including housing.
By reducing income and raising house prices, New Zealand’s tax and pension system delays home ownership and raises rents. This can increase inequality elsewhere in society even as it reduces inequality amongst older people.
New Zealand Superannuation may also be increasing long- run wealth inequality. This argument is relatively new, and was developed by four of the world’s leading retirement income experts Jagadeesh Gokhale, Laurence Kotlikoff, James Sefton and Martin Weale. It concerns the ways public pension schemes and private savings counteract the risk of dying relatively young.
Long run wealth inequality
Under the current pension system, many people pay taxes for their entire lives but then receive little or no pension benefits because they die young. To some extent, of course, this is a feature and not a bug: the pension is provided as an annuity precisely so that people know that they will have a retirement income as long as they live.
Inevitably this means that people who draw the short straw in life and die young receive fewer total benefits than those who live a long time. This can be problematic, however, when some groups of people systematically die younger than average for then the system seems rigged against them. If people who die young also have lower incomes, it can feel even worse. They can complain that they have paid taxes on low incomes all their working lives, even though on average they won’t live long enough to enjoy a full pension.
Are there groups of people who on average have low incomes and die young? Yes. For example, in New Zealand Māori and Pacific people have lower life expectancy than Pakeha or Asian people, and also have lower average earnings. But it is much more widespread than this. In most developed countries, if you look at people born in a particular year and consider men and women separately, people who have low incomes typically have lower life expectancy than those who have high incomes.
The most comprehensive study examining this issue was conducted in the USA using tax records. On average, a woman aged 40 at the 20% position in the female income distribution lives an additional 43 years, versus 47 years for a woman at the 80% position. For a man aged 40 the respective figures are 38 years and 44 years (See Chetty et al (2016).
This relationship between life expectancy and income has major implications for the way a pay-as-you-go pension scheme such as New Zealand Superannuation affects long-term wealth distribution.
This, of course, is not the full story. Women live several years longer than men on average, but earn less over their lifetimes. These differences makes it difficult to answer whether it is fair that groups of people with high life expectancy are taxed in the same way as people with low-life expectancy but get the pension for a longer length of time. If you compare men and women, resources on average are transferred from high-income, low- life expectancy men to low-income high-life expectancy women. (I don’t know if this is fair, and I am not offering an opinion!)
However if you compare men and women separately, the lower taxes paid by low income pension are offset by the lower total pension benefits they receive.
Gokhale and his coauthors realized that when people with low incomes have low life expectancy, tax-funded pension schemes may raise long-run wealth inequality even though they reduce short run income inequality. This happens because a person’s entitlement to the pension is not normally extended to their spouse or children if they die young.
Relatively few people who had low incomes during their working lives have many assets other than their house and their entitlement to a government pension when they are old. In contrast, high income people have a house, their entitlement to a government pension, and a large quantity of other bequeathable assets such as investment properties, shares, or bank accounts.
Consequently, high income people have a much greater fraction of their total retirement assets (including their government pension entitlement) in a bequeathable form than low-income people.
Gokhale, Kotlikoff, Sefton and Weale carefully simulated how the positive correlation between income and longevity affects the long run distribution of wealth. Taking into account the number of children different couples have, and the increased probability that low-income people die young, their simulations suggest that tax-financed pension schemes worsen long-run wealth inequality by reducing the amount of bequeathable assets that low-income people have if they die young. This reduction in bequeathable assets sets up a cycle of low wealth and intergenerational inequality.
As noted above, Māori and Pacific people have lower life expectancy that Pakeha or Asian people, and also have lower average earnings. This suggests that if it were possible to redesign New Zealand Superannuation to increase the amount of bequeathable wealth in the event of an earlier death, some of the main beneficiaries would be the families and descendants of Māori and Pacific people.
It is possible to sidestep this bequeathable wealth trap by financing a larger portion of retirement income through a compulsory saving scheme. The trick is to fund a “base-load” fraction of the government pension from a personal compulsory scheme, while funding the rest from government taxes.
For example, the personal compulsory saving scheme may be used to provide the first 40% of someone’s retirement income, and the government provides the rest. The base-load component would be bequeathable.
In this case it is still bad luck to die young, but the deceased person’s partner or children will inherit any unspent portion of the funds in the compulsory saving scheme. Since many people have a strong desire to leave assets to their family when they die, this is an attractive component of a compulsory saving scheme.
Towards the end of the series I will suggest a method of changing New Zealand’s retirement saving scheme so it increases the bequeathable portion of a person’s retirement assets without reducing the minimum retirement income they receive each year. This represents a way of improving the current system that may be appreciated both by those who systematically die younger than others (a group that is disproportionately male, Māori and Pacific) and those who could benefit from a larger estate if their spouses or parents die young.
In other words, there is a way of keeping most of the advantages of New Zealand Superannuation while reducing one of its disadvantages. This prospect sounds appealing and is one of the reasons why a rethink of New Zealand’s retirement arrangements is in order.
It is not the only reason. New Zealand’s retirement income arrangements are also increasing inequality in at least two other ways. These are tackled next week.
*This series and an accompanying paper are based on work I started in 2020 with Jeanne-Marie Bonnet while we were both at the University of Otago. I am very grateful for her assistance and insights. All errors remain my own.
(This article is part 6 in the series. Part 1 is here, part 2 is here, part 3 is here, part 4 is here, and part 5 is here).
**Andrew Coleman is a visiting professor at the Asia School of Business. This article is his personal view of retirement policy in New Zealand, based on academic study.
Coleman is on extended leave from the Reserve Bank of New Zealand, while working overseas. The views expressed in this article do not represent the RBNZ and are unrelated to work conducted at the Bank, which has no responsibility for retirement policy in New Zealand.
81 Comments
Much of the discussion in today's chapter seems to be about people who die young after a life of low income having little to bequeath to their family. Surely this is a death-insurance problem and has nothing to do with NZ Superannuation. Everyone could be signed up to a state-run insurance policy at the age of 18 that would bequeath a specific sum at death.
The issue of people who die young feeling cheated of their decades of income-tax-financed superannuation could be addressed in the long term by introducing non-work-related taxes to greatly increase the NZ Superannuation Fund: a capital gains tax, inheritance and gift taxes, perhaps a Tobin financial transaction tax. The NZ Super payout last year seems to have been about $19 billion, but the deposit to the NZSF only $2 billion, so we're a long way short of a sovereign wealth fund big enough to fund Super payouts. The NZSF needs to be the goal for shifting Super away from pay-as-you-go from income tax, because Income tax needs to be increased anyway to pay for a free universal health service, which, already dire, will become a greater burden as the population ages.
The great flaw of ACC is the distinction it makes between 'accident' and 'illness'. And like any insurance company, its primary mission is to avoid payout.
Health care, regardless of whether it's the family doctor or a hospital, should be free, accessible, timely, and comprehensive, for everyone. The ACC should be a means of funding the public health system to cover the cost of treating injury or activity-related illness, but this should be invisible to the patient, who should be treated free regardless of cause. Beyond that, ACC should concern itself only with income support.
I disagree. Your approach fails for two reasons; 1. It makes no allowance for causation / personal responsibility and 2. You seem to favour everything being 'free', which is unaffordable.
At its most extreme, if everything is free, no-one would need to work and then there would be no system to generate the funding needed to support such welfare. If some people choose to work in low income occupations and those people also choose not to invest in their education (which is partially subsidised by society), thus locking-in their poorer outcomes and even life expectancy, it is inequitable to expect others who have made different choices to prop up their retirement.
The same argument has been run for Universal Basic Incomes. In the end everyone is equally poor, equally miserable and the promise of free services are found to be completely hollow because the economy wasn't able to fund them.
'The issue of people who die young feeling cheated of their decades of income-tax-financed superannuation...'
Yes, rather eschatological. Perhaps it should read 'The issue of people who anticipate a premature death feeling cheated...'
However, the real issue is that NZ Superannuation is simply a social welfare benefit for the old and still alive (and barely enough for them); it was never intended as something to be bequeathed to others at death: that's what death-insurance is for.
Welcome this. Both my parents passed away before they received superannuation. Both were community minded people and both worked hard throughout their lives. When it comes to grandchildren and post secondary choices I feel this would have helped and that they (their grandchildren) would have been deserving of it.
But if your parents died before they qualified for superannuation, who has been deprived, and of what? If they were ill and unable to work before they reached 65, then that is a social welfare (sickness or invalid benefit) issue distinct from NZ Superannuation, though perhaps an argument for NZ Super to be available to some people before they reach 65. I don't see how grandchildren come into it. (I mean, the grandchildren are deprived of grandparents, but superannuation has nothing to do with the grandchildren.)
First of all, my own education was interrupted (and I am the eldest) because the first death was sudden. The other parent was on an invalid benefit for approx. 5 years. Many people who work right up to retirement age currently have little more than their superannuation to live off so when your working life is cut short by illness it affects finances plus there are also costs associated with illness. It is the accumulation effect of time and money. I believe for families who have one or both parents pass away during their working lives, probably more often than, not it increases inequality and impacts grandchildren, both those living at the time plus those yet to be born.
I sympathise with the effects on your family of the untimely deaths of your parents. However, without other assets or income NZ Super is barely enough for the recipients to live on, so I don't see that your family's financial circumstances are disadvantaged by their dying too soon. Or is it that you feel the NZ Super they did not live to get should have been bequeathed to the family. If so, I can only disagree and say that NZ Super is a welfare benefit for the living: an insurance policy is the appropriate defence against the economic consequences of untimely death.
" ....an insurance policy is the appropriate defence against the economic consequences of untimely death."
Good point. Hadn't thought of that angle. Conversely though, it's a low probability of risk, especially with regard one of my parents, that you die at such a young age. However I think your comments disguise/hide the effects of those who are disadvantaged by this. And those who don't pay an inheritance tax are thus advantaged. I myself have only recently written a will and I am practically at retirement age. It just hasn't been a priority but given my family circumstances, you would've thought that it would've been, wouldn't you?
Hello John
You are right that life insurance is an alternative way for people to provide a greater inheritance. Like a welfare pension scheme, it is based on transfers between people. Private saving relies on transfers between someone's younger self and their older self, and so is more in line with a contributory mechanism.
The question that interests Gokhale and his co-authors is whether a government pension scheme can be improved without life-insurance payments by making at least some components of the payments that people make when they are young bequeathable. This could be done by automatically including an insurance premium in the pension scheme, which is to some extent what is done in the United States for people who die before 65 and who have non-earning dependents. (This aspect of their scheme dates back to the middle of the 20th century when many families were large and were supported by a single earner, but it is less relevant in the modern world where most people (women and men) work at close to full time levels for much of their lives.)Their argument is essentially that a government scheme could be improved by making a component of it a compulsory saving scheme, for this is bequeathable. There are two different mechanisms to achieve the same end; but it raises the intriguing possibility that the current set up of New Zealand Superannuation could be improved by giving greater consideration to the importance of bequeathable wealth. This is scarcely ever discussed in New Zealand policy circles, although I have definitely heard people complain in private that New Zealand superannuation is biased against those with low life expectancy.
It is possible that both great pre-funding of the New Zealand Superannuation Fund and the introduction of a compulsory saving scheme are better for people under 45 than the current scheme. They have different costs and benefits. I favour letting people younger than me make these decisions, as they will have to live with them.
AC
Andrew, thanks for your reply. What bothers me is the widespread belief that NZ Super is a pot of gold to which everyone should be entitled in various ways, whereas I cling to its original purpose: to be a social welfare benefit so that we don't have old folk dying in the gutter. As a welfare benefit it doesn't matter if one gets it for one year or for 30: the point is that one gets it every fortnight for life. Peter Dunne's plan, for instance, to make Super available at an early age as a small amount, or available later for a bigger amount, would have been the opposite of a welfare benefit: it fostered the idea that a pot of gold awaited, and would be bigger for those lucky enough (the wealthy or in well-paying jobs) to defer collecting it. That seemed to me a poisonous proposal.
I hope we shall keep NZ Super simple and universal, and alongside it have KiwiSaver (without state subsidy) for those able to save, and also, but separate, insurance against premature death which, if universal and compulsory, might not be expensive.
New Zealand Superannuation is indeed designed as a welfare-based pension. It is different in this respect to most retirement income programmes in the OECD. It is designed to do different things than retirement income programmes overseas (which are designed to help people save for retirement). The question remains whether it is still an appropriate design for the 21st century, or whether it can be improved to fit in with the desires of new generations of New Zealanders. Personally, i believe it can be improved (but the choice is not up to me).
One of the questions i shall address next week is whether the New Zealand model - a relatively high basic pension, complemented by private saving - is consistent with what we know about the way that people actually save and invest. Modern behavioural economics raises series questions whether a lot of people can save and invest in appropriate ways - or whether they need help. If they need help, the question is whether this should be government help and if so how this should be designed. Theses issues are not settled. What is reasonably clear, however, is that our current tax system is not appropriately designed to help people save and invest in appropriate ways - it is extremely distortionary - and that there are some relatively simple ways that the government can help people improvement money management once they have turned 65. These improvements could be done keeping NZ's system in its current basic form, or they could be done adopting the type of contributory or compulsory saving scheme that is adopted in almost all other OECD countries. We should be looking for ways to improve on the existing model, and not simply assume that the current model is sufficiently good that it needs no further work.
ac
AC I struggle with this comment "By reducing income and raising house prices, New Zealand’s tax and pension system delays home ownership and raises rents. This can increase inequality elsewhere in society even as it reduces inequality amongst older people."
I feel you either gloss over some detail or are just wrong. By delaying home ownership many people are still paying mortgages when they reach retirement age and are forced to work longer. In addition they may be being forced to work longer when physically their age limits what and for how long they can do that. In addition you make no mention that the rate of Super in the current environment is in itself a form of poverty as it is insufficient to meet the cost of living for most if not all people.
You also spend a lot of time discussing dying young. You pay no credit at all to a major contributor to health issues in later life are driven by lifestyle choices. Much can be done by people to protect their lives and their health. The downside is that it takes discipline and commitment. I do not agree that looking to the state for compensating people who made dumb choices is the way to go.
murray86: 'Much can be done by people to protect their lives and their health. The downside is that it takes discipline and commitment. I do not agree that looking to the state for compensating people who made dumb choices is the way to go.' This attitude could be applied to the existence of any form of state support, including NZ Superannuation itself. It is unfortunate that we have developed into a selfish society where the successful are quick to scorn those who fall by the wayside.
John peoples expectation for state support has got out of kilter. Social Welfare was originally designed as a parachute, when luck went against you, today it is a career choice.
What we are actually discussing is the states involvement in supporting people when it is needed. History teaches that the state is quick to take its taxes, and indeed is punitive when ensuring it gets them, even at the expense of the payers. Governments sold the current system to voters, admittedly before most of the current generation of voters were old enough to vote, but none of the subsequent governments have seen fit to try to develop a fair and equitable model that does what it is supposed to. People blame the boomers, but they are a rapidly declining demographic, and still nothing changes. In an environment of exorbitant living costs due to government ineptitude I struggle with yet another case being raised for more taxes.
I don't believe SW should be able to be a career choice. I don't think people should be able to have children with the belief that the state should support them, Child poverty is a parental choice, not a societal one. I also don't believe people should be able to say i will die young because of stupid choices I made and I think the state should compensate my family for that. that is life insurances role. You can choose a healthy lifestyle surprisingly late in life that can cancel out many poor choices from earlier in life. You just have to want to.
Agreed. When people need it.
Social Welfare also shouldn't be seen as a loyalty scheme, where old people puff up their chest and claim to be "more entitled" to it because through good fortunes their hard work rewarded them a much higher income (and subsequently tax dollar amounts paid) over their lives than the equally as hard working fella down the street.
C'mon Dan, those "old people" are just calling out the government on the promises made to them. Besides Super today is not a liveable income on it's own.
What really riles me is that the younger groups blame older generations all the while believing they are smart and intelligent. But none of them blame the politicians who built the system. Why not? AC here at least is trying to present a case, and is developing the discussion on why the system needs to change. We can agree or disagree, but at least he is trying, and doing so by examining how we got here.
Of course we blame the politicians that built the system. But we can't exactly ask Muldoon to wind back what's been done. I'm calling out the entitlement mentality voters of the day who are now retired, many receiving this welfare despite not needing it and despite it unsustainable.
Let's call it for what it is. A benefit. Let's have a real conversation about who actually needs it, although I concede it might be difficult to do with the stubborn, selfish older generations. But I do sympathize, lead exposure in childhood is known to manifest in cognitive impairments as adults, making people less agreeable, less considerate and resulting in lower IQ's.
Retirement is not "a career choice". That's a distortion that is only designed to support a biased perspective. Do you think people should not be able to aspire to retirement when they get old? What about those who were only ever able to earn in the lower quartiles/
It is a natural product of government policy though - that is growing the population. That policy will always result in an increasing demand on SW. Perhaps the goal should be for the government to target a stable population?
Retirement when you are still able to work is absolutely a career choice, and many 65+ year olds that I know have made that choice thanks to government welfare (NZS).
Let me rephrase your pragraph:
I don't believe SW should be able to be a career choice. I don't think people should be able to retire at 65 with the belief that the state should support them, retiring at 65 is an individual choice, not a societal one.
If you're arguing that only the financially capable should be able to have children, it would be consistent to argue that only the financially capable should be able to retire when they can still work.
Personally I'm not advocating one way or the other, I'm just pointing out an inconsistency in your views where you appear to be arguing that those on lower incomes should be able to retire at 65 and be supported by SW, but should not be able to have children supported via SW.
"many 65+ year olds that I know have made that choice thanks to government welfare (NZS)." Are they physically capable of continuing to work though? You're making that judgement that they are, based on what? Again those people making that choice are doing so based on promises made to them over the years by politicians.
"If you're arguing that only the financially capable should be able to have children, it would be consistent to argue that only the financially capable should be able to retire when they can still work." No. You're distorting what I stated. I said the choice to have children should be based on the ability to provide and care for them, not on the state's willingness to do so. This was a choice I made in the 80's when my children came along. It is a choice that people have had to make for millenia. People on the other hand, as indicated earlier, have been promised they can retire at the age of 65, and will be funded by the state. Many from others perspectives will/should be able to work, but can they really? I am 67 in a week. I am still working because i can't afford to retire. I am very fit and capable for my age, but I can tell you unequivocally that is is rapidly getting very hard to put in 40 hours a week, even in my role as an an analyst and QA specialist.
By comparison the contribution to society has changed over time, when ones effort has been bled off by the state in taxes. The state (NZ) has promised Kiwis for decades they will be provided for when they retire, and tax has been set to account for that. Now you're arguing that people should be able to provide for themselves, but you're not arguing for a commensurate tax cut to enable that.
this entire debate is far too complex to try to sum up in simple terms, and twisting peoples words doesn't achieve anything. For example it could easily be claimed that super could be fully funded for all retirees through deficit spending. But at what level? And how would that be set?
.....have been promised they can retire at the age of 65
Did you get that promise in writing? Or do we just have to take your word for it?
Even then, you were promised you could retire at 65 and be funded by the state. Not double dip by carrying on working and claiming a benefit at the same time. Especially for those on $100k+ p.a. there's absolutely no reason they need it. If you can't put in 40 hours a week, then go to part time or retire.
in writing - Yes. The official retirement age is 65 and that is the age of entitlement for Superannuation. so yes that promise is in writing.
I cannot argue whether those on $100k plus need it or not. I don't know their circumstances and I believe it is to be fairly arrogant to make that judgement. I certainly do know that $100k income is nowhere near as well paid as it used to be as little as 10 years ago. But here's the thing, if people don't need the income from super they don't have to apply for it. It doesn't come automatically when you get to 65. Perhaps you should explain why you think people shouldn't be able to get super if they were receiving $100k plus when they were working? Oh and what if it was for only the last one, two or three years, and before that they received a lot less? If you're receiving $100k today and you're the sole earner how much should you be able to save to support yourself and yours on super when you quit?
Everyone is entitled to the super age 65 end of story. If you start fiddling with it and putting in conditions its a downward slippery slope, what's next, you start getting pinged because you have a large TD at the time your retire ? You know when people pay off the mortgage and then get a bit of savings you penalise them for not just blowing it all ? Come on people you all know darn well when you turn 65 you will be putting your hand out.
Shrug, Australia seems to have little qualms means testing their Government Super and they're a country that can probably afford to do away with those sorts of tests.
But you're right, if I turn 65 and it's available I'll put my hand out. Doesn't mean I'm pro-non means tested Super. I'm not 100% against it either, but it's a huge chunk of change every year that goes to wealthy retirees at a time when rest of the country is falling apart.
My view is this: Ensuring wealthy retirees and those currently still in work receive a $20k p.a. pension is right at the front of the queue in this country, and all the other problems are piling up behind it, fighting for the scraps.
what is fascinating in your comment is that it is clear you want someone else to decide whether you need it or not, rather than having the integrity (which i think you expect others to have) to not apply for it. So you prefer less freedom? You do understand that freedom comes with responsibility?
Someone else making that decision may not fully account for all your life circumstances and you in the end might not agree with that decision. Have you considered that possibility?
Hi Murray
Lots to unpick here. Unfortunately much of it will have to wait until we get deeper into the material on taxes. It is a bit of a struggle to chop a fairly long paper up into 13 - 14 parts , particularly when it involves around four major themes : (i) contributory versus welfare based pensions; (ii) save-as-you-go versus save-as-you-go funding (iii) taxation or other funding mechanisms; (iv) inequality. The point I am alluding to really concerns the funding mechanism and taxation, and how in NZ this is putting upward pressure on house prices. When designing a system such as NZ Superannuation that is ostensibly designed to reduce inequality by giving everyone over 65 the same amount of retirement income, you need to be careful that the funding mechanisms you use (in this case general taxes) don't inadvertently lead to bad outcomes elsewhere. In New Zealand's case this is occurring, because the taxes we are use are making house prices artificially high. This does not contradict the other points you make.
AC
'...to provide a home for themselves & their family... Exactly as it should be. But not at the expense of expecting the following set of New Zealanders to pay for that via property speculation. "worked all their lives" is the right point you make. WORKING; being productive to make a living, not borrowing more and more and more, and placing a Government Guaranteed bet.
Ah no. The opposite. I wont waste my time - go study it.
But I'll have one go at helping you -
Gareth Morgan's Universal Basic Income (UBI) tax idea is designed to create a fairer distribution of wealth by providing every citizen with a basic income, funded by a comprehensive tax reform. His proposal includes a flat tax rate on all income, including capital gains, and a reduction in tax loopholes and exemptions that often benefit the wealthy. This system aims to spread the tax burden more evenly across the population, ensuring that everyone contributes a fair share based on their total income and assets, while also receiving a guaranteed income to cover basic living expenses. The idea is to simplify the tax system, reduce inequality, and ensure a stable income for all citizens
Ah, yes...
You "forgot" to mention the deemed rate of return on the family home, why was that?
https://www.interest.co.nz/news/88594/while-they-align-ideals-labour-gr…
https://croakingcassandra.com/2016/12/16/gareth-morgans-tax-policy/
"...and this unaffordability of housing. I mean, what are we doing? This is just insane."
He's right about that.
https://www.newshub.co.nz/home/politics/2017/03/slash-super-to-pay-for-…
I lean more towards the opposite. Look at business behaviour when people are automatically given more money. For example childcare. Every time the govt makes changes such as 20hrs free or increased funding for families with young children via WFF, the childcare centres simply up their price and the money flows right from where it is intended, to the centres and they reap more profit from this. There were plenty of landlords who upped their rents when the announcement came that students would be getting $50 a week more in allowance, etc etc. If everyone was guaranteed a set level of income, I think businesses would simply calibrate prices accordingly to have the exact same margin, and not many would be better off.
Sadly true. People that work hard and achieve financial independence seem despised and others seem to spend a lot of time thinking about ways their hard earned wealth could be taken away and used for handouts. Then when people who did not look after themselves, or die young, or did not listen at school and end up in a job where hard manual work is required - and die young or crippled (which is their own fault), they complain (or people complain on their behalf) that they are missing out on handouts that they never contributed to. Strange.
There's a myriad of ways people can improve themselves, but many don't.
They pump out kids, leave school, and really, for many that's the end of it. It does take a bit of effort though, and many just aren't up to it. NZ and Aussie are lands of opportunities. I've got a nephew who's had every opportunity, but he's squandered his life. 2% for School Certificate English (that's right - 2%), drugs, booze, drink driving ...just a massive, welfare dependent, jobless, bludging, 40 year old failure.
Success and hard work are viewed with contempt.
I'd say it is more the case that hard work is viewed with contempt given how the labouring classes are looked down upon generally here in NZ - and hence the lower and lowest pay rates for the more energy expended at work.
Someone should do that calculation - the more calories you burn in an eight (sometimes 10 or 12 hour day) the less pay you earn..
When I arrived in NZ from the U.S., with a University degree in the mid 70s, I worked on farms and in horticulture and beekeeping. Very hard work, and I was never looked down on. I saved a lot of money and invested it. Now the Greens would like to take it away, with their very low threshold wealth tax. Makes great sense, killing all incentive to save and invest in NZ.
Low incomes and early deaths are a direct result of poor life choices. Why is that the taxpayers responsibility to compensate people for making them?
Turn up to school, get a job, go on a diet, don't commit crime, don't do drugs, stop smoking, stop having babies you can't afford to raise. Its not rocket science.
... over many decades NZ has morphed into a cradle-to-grave welfare state ... successive governments have cravingly sought political power by gifting freebies to the voting public ... WFF ... accomonadation supplements ... an endless array of bribes and packages offered to a gullible populance ...
The end result being a large proportion of people who feel " entitled " , special ... lacking a need to take personal responsibility for themselves ...
Luxon's coalition are just shifting a few deck chairs , giving jobs to mates , pretty much carrying on as their predecessors have ...
I have a builder friend who broke his back falling from a second storey. 12 months into recovery and unlikely to ever get back to what he was doing, fortunately not paralysed. Like all builders, contract based, he had worked at minimizing his tax every year, not unusual, ACC payments are at a subsistence level due to this. Unintended consequences.
ACC payments are at a subsistence level
Yet when it came to paying the premium for his profession, it would have been one of the highest charged. Tax minimization is not illegal - so the effect that kind of prudent behaviour had on him is unreasonably punitive (i.e., discriminatory to my mind) and again, 'built in' to the system..
Is it not entirely fair someone gets paid form injury based on the amount of earnings they have paid tax on? Otherwise we'd have people getting paid from injury based on offset earnings etc etc and the system would be ripe for exploitation. Feels fair that to get paid out for earnings that you had to pay your fair share.
Is it not entirely fair someone gets paid form injury based on the amount of earnings they have paid tax on?
Absolutely not fair. Take the management executive that goes out on the weekend and pulls a hamstring on the golf course verses the furniture mover who suffers the same injury on the job. One can likely return to work a week or so (on full pay) in a cast after the injury - whereas the furniture mover is like off work on a lowly paid (non-living wage) ACC benefit for a month or so.
Is that fair?
It isn't relevant if people are at work when injured or not, it matters if they are employed at the time and have recent earnings. If a tradie runs the business at a loss to minimise taxes and hence has no tax-liable earnings, they won't get anything as they'd not have been charged ACC levies and paid no tax on earnings. It;s like if you pay no insurance, you get no insurance. ACC levies for people in business and now rental property profits are payable based on the profit generated from your trading activities. If they declare and pay tax on the earnings, and have been working within a certain time before the accident then they would get something. Seems pretty fair to me, as why should everyone else's levies and tax fund those who choose to structure their business to pay minimal or no tax.
I provided a specific example and asked
Is that fair?
You didn't really address the question as it relates to that example directly. Easy question - simple example - yes or no will do. No further explanation needed; all I want to know is whether you think that example is fair.
Yes, more than one a week (and none of them occurring at a desk job) - and if you figure in the min 3 weeks annual leave plus stat holidays - it's a lot worse than that.
You'd find most manual labouring jobs have both random and mandatory drug testing. Doubt many of those deaths have anything to do with drugs.
I don't know what world you live in but I suspect you don't make a living working on a low wage with a large employer that has extensive health and safety checks/rules.
It would rapidly increase rates of suicide and starvation as most areas do not have suitable meals on wheels that deliver cooked food appropriate to medical diets and we have no accessible forms of MHS or education in NZ currently. But sure so long as you can feel better and put the boot in someone poorer then you all good eh.
'Relatively few people who had low incomes during their working lives have many assets other than their house and their entitlement to a government pension when they are old.'
I'd suggest that assumption will not be relevant or applicable in next 20 or so years. There will be a glut of Generation X, Z and Millennials who will never own their own homes (from even the middle class.....let alone those on lower incomes).
Private investment and insurance schemes....cui bono?
If these are so beneficial let the industry sell to all those who wish to engage their services rather than enlisting the states power of compulsion.....there is only one thing guaranteed in such schemes and that is the fees the industry reaps.
If these are so beneficial let the industry sell to all those who wish to engage their services
The private sector prices out those who are most likely to benefit from/use such policies (if they had them) - and no government would take on those enormous premiums on the taxpayer dollar either.
I think that proposal is going to be explained in the next in the series - so it depends on how that is structured. What I'm pointing out is that under current market conditions (i.e., without some amendments to market regulation) it's a no-goer for the folks most likely to benefit.
The folk most likely to benefit are the industry....those unable to avail the current offerings are in no position to meet the demand of a compulsory scheme. ....but I guess we need to find new sources of revenue to continue to feed the bubble, even if only for a few more years.
But imagine if the compulsory scheme contributions are paid out as a percentage of salary but the benefit (on the event of death prior to pension age) is an equal lump sum paid out on all claims.
It all depends on how the regulation is structured. That's the beauty of being in government - you can choose to introduce regulation that targets an improvement in the Gini coefficient if that's what you want to do. Or, you can exacerbate wealth inequality if that's what you want to do.
The neoliberal approach targeted the latter.
Which GINI ratio?...Income?
I will await the (industry?) proposal with the expectation that we already know the motivation(s) and that it will be unable to deliver the real resources retirement demands nor provide relief to the younger cohorts expected to provide them.
Interesting thoughts Andrew - Obviously 'Government' is just a word meaning other tax payers. Life is a lottery and superannuantion is just that and not an annuity that people earned unless the government actually puts it aside with their name on, dont count it as an asset on the books - only then could it be passed on. Not in favour of other taxpayers paying an annuity to the family of a dead person. We are missing the base issue of low wages as a society and individual responsibility as contrversial as that part sounds
It is not necessary for people to get annuities. All is really being observed that if there were a compulsory saving scheme as part of the retirement income system, any money in the account would be available to the estate if the person died young. The research undertaken by Gokhale et al suggests that this is enough to make a reasonable difference in some circumstances. In the Australian Guarantee system, for instance, the money that is accumulated in your personal accounts goes to your estate. If it is left to a dependent, it can either be taken as a lump sum benefit or as an income stream; if it is is left to someone who is not classified as a dependent, it is left as a lump sum. There is no extra entitlement for the estate to a person's ordinary "welfare" pension - it is only the sum accumulated in the compulsory saving scheme.
I suspect many people in New Zealand find this arrangement to be quite appealing if we had a compulsory saving scheme as part of the retirement income strategy.
"Saves such taxpayers from paying in for no benefit."
I like to think that a better educated populace improves the quality of life for all who live here. Let's not forget the landlord tax breaks to which we are all contributing ..... and for whom? ..... not just landlords and their families but the political party who provided the breaks in the first place in the form of increased donations for their next political campaign. Democracy at it's finest.
Kiwisaver is self-funded, employer-funded and government funded to various degrees. And of course, those unable to work throughout their lives miss out on the employer (and government contributions, I think). Plus, as house prices are as high as they are, the government conveniently allowed the young to raid these future savings for a house deposit.
Not saying Kiwisaver is not a good thing - just saying it is (at this stage) not a complete answer in terms of an adequate and universal retirement provision (if indeed that remains an objective of our social democracy).
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